Building approvals are extremely low...except here

Approvals slump continues

CBA economist Stephen Wu predicts that inflation by December could begin with a '3-handle', with some economists suggesting the most recent interest rate hike may have been too hasty.

Indeed, with the base effect he's probably spot on, and it looks as though inflation is actually declining faster than the Reserve Bank's latest forecasts.

Certainly the building industry is despising current conditions, with insolvencies at decade highs.

In that context, it wasn't a surprise to see annual dwelling approvals slumping to the lowest level in 124 months in October, at 166,000. 

Louis Christopher estimates that with cancellation rates presently running so high dwelling completions might be only 150,000 or so next year, even before accounting for demolitions. 

There have been some large projects approved in south-east Queensland such as the twin towers in Robina and a large development in Brisbane's Fortitude Valley, but project approvals in Sydney and Melbourne remain very low. 

House approvals should begin to recover with demand next year, but are currently trending lower with a HomeBuilder hangover, though approvals in booming Perth are already rising again. 

Overall, building approvals have increased a little of late, but are way to low at around 14,000, with few medium- and higher-density projects likely to stack up or pass feasibility in the current environment. 

Overall, the mix of higher interest rates, trades, and materials costs mean that developer profits just aren't easy to come by at today's prices. 

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Stuart Wemyss from ProSolution

ProSolution advisory

My weekly coaching calls are usually for clients only, but there was some great general information this week from Stuart Wemyss, so I thought I'd share it here:

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Inflation cools to 4.9pc

Inflation cools

The monthly inflation gauge showed an implied fall in prices for October, taking the annual rate of inflation down from 5.6 per cent to 4.9 per cent.

This was lower than market expectations for 5.2 per cent (and, of course, well down from the highs of 8.4 per cent in December 2022). 

Source: ABS

James Foster ran through all of the key information here. 

As ever, there are some good reasons for caution. 

Rents will generally continue to rise over the next 2 to 3 years, for example.

On the other hand, we should get a very timely drop in fuel prices over the next few months, and red hot new dwelling cost inflation should also now ease from here. 

The recent global bond rally continues, with dovish words from the Fed, and Australia joining Germany and Spain in reporting softer inflation figures.

Australia's key benchmark 3-year bond yield began the month at 4½ per cent, and will end it at under 4 per cent. 

The somewhat weaker than expected inflation figures also broadly ensure that interest rates will be on hold until February. 

Looking ahead, we should see some decent goods price deflation in Australia, with some residual price pressures for the cost of services, and holiday travel.

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Retail turnover declines in October

Retail disappoints

Retail turnover missed expectations, declining modestly by -0.2 per cent in October, to be just +1.2 per cent higher than a year earlier. 

Total monthly turnover remained a little below the 2022 peak, at $35.77 billion, despite some marked increases in prices and population growth over the course of 2023. 

'Black Friday' sales should see a spike in activity in November, which hasn't always been easy to account for with seasonal adjustments (as you can see from the 2022 spike and then subsequent trough). 

There have actually been a few such factors creating noise, such as the i-Phone 15 release and a surprisingly warm spell, so following the trendline is probably smart here. 

The king of Aussie market analysts James Foster ran through all the key details here.

Looking ahead, consumer durables prices are set to go into outright decline in Australia, following the sharp drop in Chinese export prices for consumer durables. 

Justin Fabo chimed in with this awesome graph to demonstrate the relationship:

Monthly consumer price inflation figures will be very closely watched when they are released tomorrow morning.

The annual figure should follow fuel and electricity prices lower, although it's less clear what will be recorded for goods prices. 

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Strawman live podcast and webinar

Strawman podcast

I was delighted to join the legendary Andrew Page at Strawman to discuss all things property investing, and more.

Tune in here (or click on the image below):

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P.S. Whenever you’re ready…here are 4 ways I can help you manage your own money and go next level wealth:

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2. Subscribe to our Top 10 Podcasts for Investors

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Queensland doubles first homeowners grant

2-Sense podcast

This week Batesy and I discussed all the latest news property market news and what comes next for the housing market here (or click on the image below):

You can also watch the video version on YouTube here:

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2. Subscribe to our Top 10 Podcasts for Investors

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Groceries in deflation says Woolies

Woolies cheaper

Woolworths reports grocery prices are now falling:

This follows on from a pending fall in fuel prices, with petrol prices set to drop over the next month.

Housing construction costs next (and hopefully airfares too).

The government is having a shocker with household energy bills, having campaigned on the reduction of prices for households.

Another horrenous poll this weekend suggests they need to get onto it fairly quickly or there will calls for a spill at this rate...although perhaps there are internal party rules precluding that now?

In other news, SEEK's advertised salary index increased by a modest +0.3 per cent last month.

Having peaked at +5 per cent in December 2022, the annual growth in the index has steadily slowed to +4.6 per cent over the year to October.

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Unleaded down to $1.39/litre in Sydney

Fuel prices ease

Lower oil prices are now just beginning to filter through to more attractive prices at the bowser, at least for petrol (if not so much diesel, just yet). 

As per my above Tweet from late September, both petrol and diesel prices have been a big part of the consumer price inflation story of late in Australia.

The NRMA notes that prices have fallen more than 10 cents per litre this week, and expects prices to fall significantly further over the next 2 to 3 weeks. 

The Aussie dollar hitting a 3-month high could also prove to be something of a factor here. 

During the week ahead the monthly inflation figures should drop back from 5.6 per cent to around 5.2 per cent over the year to October. 

Looking ahead, the forthcoming lower fuel prices - and probably some retail discounting - should see us observing inflation of around 4 per cent inflation before too long.  

The government will certainly be hoping so, with Labor - almost unbelievably - now trailing in some polls. 

Another interest rate hike, on top of higher-than-expected fuel and energy prices, might well even finish this Prime Minister off. 

There's a stack of other news and data out this week, but the monthly inflation figures will probably be the most interesting.

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[Podcast] Our no-nonsense Big Picture Podcast about the economy and property markets with Pete Wargent

Big Picture Podcast

I joined Michael Yardney on the Big Picture podcast for a no-nonsense review of all the latest issues.

Tune in here (or click on the image below):

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UK net immigration figures, as expected, are completely off the charts, hitting a record +745,000 last year. 

Source: ONS

Housing shortages everywhere...

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2. Subscribe to our Top 10 Podcasts for Investors

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Fresh Economic Thinking with Dr. Cameron Murray

Fresh Economic Thinking

I was delighted to join Dr. Cameron Murray at his Fresh Economic Thinking podcast to take a look at the purported housing crisis and some possible solutions.

Tune in here (or click on the image below):

Listening back to this and playing devil's advocate, I'd say these are decent high-level ideas, but in practice how best would they be fleshed out?

At the risk of looking like an Antipodes-based Dominic Cummings, I've added a few shorthand notes below.

Firstly, on the problem, and a possible solution - being a commitment to investment in the regional renaissance:

Secondly, on how a Mittelstand economy may work in practice, and how governments can assist the process...

On immigration, education, and productivity, as well as the rezoning debate...

And, on the rental market crisis...

Could probably speak for at least as long again on these issues, but it was a great opportunity to sound out some ideas. 

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2. Subscribe to our Top 10 Podcasts for Investors

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Domain Chart Pack shows rental crisis afoot

Rental shortage accentuated

A few graphs from Dr. Nicola Powell at Domain in the latest Insight chart packs.

House prices have essentially recovered from the pandemic downturn in the big cities.

Ditto for unit prices...

Days on market are currently relatively low, especially in the capital cities.

The rental market is surging with unit rents up another +3.4 per cent in the September quarter (house rents are following a similar trajectory).

Rental vacancies continue to decline, hitting record lows at just 0.8 per cent, both in regional Australia and in the capitals.

No end in sight for the rental crisis, by the looks of it. 

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P.S. Whenever you’re ready…here are 4 ways I can help you manage your own money and go next level wealth:

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2. Subscribe to our Top 10 Podcasts for Investors

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Property interest bill doubles

Mortgage interest spirals

Property interest payable on dwellings increased from $45 billion to $91 billion in the 2023 financial year, more than doubling in recording an increase of +102 per cent.

Good news for banks, I guess but will most likely be crippling for household expenditure, consumption, and retailers over the next year...

Gross incomes per capita increased +5.7per cent in FY2023, after a +5.5 per cent increase in FY2022. 

There were some strong lifts in incomes in the ACT (always...of course!), Western Australia, Queensland, and New South Wales, all of which recorded increases in the range of 6 to 7 per cent over the financial year past. 

However, increases in disposable incomes were only far more modest, largely due to inflation.

Such an enormous increase in mortgage interest payments in such a short space of time will almost inevitably stall the economy over the next year.

Concerningly, the dwelling construction cycle has apparently also been short-circuited, suggesting a dramatic shortage of housing over the next few years. 

Lending conditions are ridiculously tight, so something will need to change here at some point, with the current settings creating severe disruption in some parts of the country, with unrest potentially not too far behind. 

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UK Home Office estimates to be released this week are expected to show estimated net migration hitting around +700,000 this year, eclipsing the record +606,000 set in 2022.

So it won't just be Australia tackling a housing shortage...in fact, this seems to be a global issue, with much of the EuroZone now facing similar challenges. 

Speaking of housing shortage countries, Canada saw its inflation rate decelerate from 3.8 per cent to just 3.1 per cent in October.

Great to see Canada winning its inflation race. 

Australia next...

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P.S. Whenever you’re ready…here are 4 ways I can help you manage your own money and go next level wealth:

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You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

2. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts.

And our enormously popular Low Rates High Returns Show is also available on Spotify.

3. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.4 million hits here. 

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,000 followers. 

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